MADISON, Wis.–Look for inflation to continue to linger around, according to one CU economist.
In the October Trends Report from CUNA Mutual, which is based on data through August, the company’s chief economist, Steve Rick, quotes the 1962 observation from Nobel prize-winning economist Milton Freidman in which he said, “Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”
The Federal Reserve, said Rick, “is currently putting his hypothesis to the test.”
Rick noted the nation’s money supply has experienced the fastest growth rate in modern history.
“The money supply (called M2) consists of currency, checking deposits, savings deposits, money market deposit accounts and certificates of deposit,” wrote Rick. “M2 closely resembles the deposit products offered by many credit unions to their members. We can therefore see the close correlation between credit unions’ deposit growth rate and the M2 growth rate in the figure below.
During the last 18 months, the nation’s money supply and credit union deposits grew over 20%, but output increased less than 3%. In other words, credit union members and Americans, in general, are flush with cash but don’t have additional goods and services to spend it on.”
Members Have High Balances
Rick noted the data show the average credit union member was sitting on $13,490 in deposits this past June, up from $10,860 in June 2019, before the COVID-19 pandemic and the three resulting stimulus checks.
“This $2,630 in additional liquidity has provided members with significant additional spending power,” stated Rick. “Economists also define inflation as, ‘Too many dollars chasing too few goods.’ So, we could be looking at inflation staying around longer than some, as the Federal Reserve believes will be the case.